Primary Health Properties (LSE:PHP) has reported a doubling of adjusted Earnings and rising rent reviews, with Leverage reduction now the key priority following its Merger with Assura.

Primary Health Properties (LSE:PHP) is working through the practical consequences of its Takeover of Assura, completed in October 2025. The most recent update, published at around the start of October, indicated rent reviews running slightly ahead of guidance, with the integration largely complete and joint venture transactions progressing.

The group (LSE:PHP) said it had added £5.8 million of additional rent from 480 rent reviews in the first nine months of the year, an annualised uplift of about 3.1%. It also noted a £6.5 million extension at Tees Valley Hospital, and said that proceeds from joint venture transactions are earmarked for reducing leverage.

That comes after a half-year report, published in July, which showed the transformative effect of the merger on the income statement. Net rental income rose by 123% to £176 million in the six months to 30 June, and adjusted earnings roughly doubled to £98 million. The company has delivered 92% of its targeted £9 million of annualised cost synergies and refinanced £1.2 billion of debt.

About the company

Primary Health Properties is a real estate Investment trust that owns and manages buildings used for primary healthcare, chiefly GP surgeries, medical centres and related facilities. Its tenants are typically doctors, pharmacies and other healthcare providers, and a large part of the rent is ultimately funded by government health bodies in the UK and Ireland. Properties are let on long leases, usually with rent reviews linked to market rents or inflation, which gives the portfolio a defensive income profile.

The company earns money by collecting rent, actively managing and extending its buildings and, from time to time, buying or selling Assets to improve the quality and balance of the portfolio. As a REIT, it is required to distribute most of its property rental profits to shareholders, which is why dividends are central to how the Business is judged. Funding costs matter a lot, since acquisitions are paid for with a mix of shares and borrowings.

Financially, the merger with Assura has transformed the scale of the group. Net rental income rose by 123% to £176 million in the six months to 30 June, adjusted earnings roughly doubled to £98 million, and annualised contracted rent stood at £342 million at the start of the year. The enlarged portfolio is valued at about £6 billion, and the strategy now focuses on integration, capturing cost synergies and bringing leverage down towards the target range.

The leverage priority

Debt reduction remains the central strategic objective. Management is aiming for a leverage range of 40% to 50%, and chief executive Mark Davies said in January that the immediate priority was delivering post-transaction objectives, including lower leverage. At 31 December 2025, net Debt stood at £3.4 billion, with an average debt Maturity of just over four years. A planned strategic joint venture for the private hospital portfolio is part of the same process.

The enlarged portfolio is valued at about £6 billion, and 76% of income is backed by government bodies and long leases. Annualised contracted rent stood at £342 million at the start of the year. That long-dated, largely public-sector income base is the key attraction of the business model, offering relatively predictable cash flows in exchange for a lower rate of growth.

Dividend record extends

The Dividend record has become a defining feature of the FTSE 250 company's identity. In July, the group extended its run of consecutive annual dividend increases to 30 years. In January, it set a first-quarter Interim Dividend of 1.825p for 2026, up 2.8% from 1.775p a year earlier, paid in equal quarterly instalments under a progressive policy.

Why healthcare property is treated as defensive

Demand for primary care premises is driven by population growth, an ageing society and the policy aim of treating more patients in the community rather than in hospitals. These trends are slow-moving and largely independent of the economic cycle, which is why healthcare property is often described as defensive within the wider real estate sector.

The model has limits, however. Rental growth is usually modest because rent reviews follow set mechanisms, and the sector is sensitive to interest rates, since valuations of long-income assets move inversely with the yields investors require. Planning, construction costs and the willingness of practices to invest in new premises also affect how quickly the portfolio can grow.

What could move the story next

The largest variable is the pace and pricing of joint venture transactions, because the proceeds are intended to pay down debt. Delivery of the remaining cost synergies, further refinancing and any change in valuations will all influence the loan-to-value ratio, which is currently the key Balance Sheet measure.

Investors will also follow rent review outcomes, the occupancy of the portfolio and decisions by health authorities on funding of primary care. If leverage falls as intended, the group will have more room to resume portfolio growth while continuing its long record of dividend progression.

Yield versus balance sheet

Yield-focused real estate investors will be assessing whether rental growth and cost savings can support dividend progress while debt is reduced at the same time. Rental uplifts of about 3.1% offer a useful driver of income growth, but higher leverage following the deal means the group has less room for manoeuvre than before the merger, and the speed of the joint venture programme is likely to be a key factor.

Loan-to-value is projected at about 50% for 2026, at the upper end of the target range. The next results should show how much progress has been made towards bringing that figure down.